As the old journalism cliché has it, if it bleeds, it leads. News about Latin America is no different. Most people who give it any thought would say that Latin America is a region beset by drug lords, populist governments, and economies prone to collapse. But this view is a caricature. The region, like any other, has its share of difficulties, but the far more accurate, complete view emphasizes dramatic, positive changes and economic opportunity for those willing to make the effort to succeed.
For the past decade, Latin America has been on a tear, with average annual growth rates ranging between four and six percent in the aggregate (with global crisis years of 2002 and 2009 being the only exceptions). Along with Asia, Latin America is one of the world’s fastest growing markets, with some 800 million people who are rapidly gaining economic leverage and sophistication as middle class consumers. Economies are stable due to the reforms made with the advent of democracy. Central banks are largely independent, inflation and debt loads are under control, budgets are better managed, and economies are significantly more open to trade and investment today than in previous years.
Of course, not every nation is exactly the same. The top three economies by size—Brazil, Mexico, and now, Colombia—enjoy strong economic management as do Chile, Peru, and Uruguay, as well. Others have opted for populist authoritarian models that have proven to be less conducive for long term growth and integration into in the global economy. Nonetheless, given their significant role in supplying commodities to the world, particularly a growing China, virtually every South American nation has shown continued growth even in the midst of global downturn.
That may be changing, but the fundamentals remain compelling. As China slows and the commodities markets cool, South America, too, will slow, which is already occurring. In this scenario, it will be the better managed nations, which remain open to global trade, eschewing a retreat to protectionism that will emerge from the global slowdown even stronger than before. For its part, Mexico—which does not rely to the same extent as South America on the commodities trade with Asia and is more reliant on the strength of the US economy—is already enjoying higher growth levels this year than its counterparts further south.
Still, Latin America has two things that the world needs: food and energy. At seven billion, the world population is large and only getting larger. And Latin America is very well positioned to feed and supply the energy that the world needs. The region is globally competitive in agriculture, with vast, arable lands and ample supply of fresh water, coupled with conducive growing cycles and advanced proprietary technologies. As emerging markets develop, their populations will demand a higher daily caloric intake as well as higher quality of foodstuffs. This puts an even greater burden on net food consuming nations and amplifies their quest for food security, which Latin America can strive to fulfill.
A growing world uses more energy in aggregate and per capita consumption terms. Green and renewable energy production and consumption have become critically important. Latin America’s energy matrix is the cleanest in the world and includes significant utilisation of renewables including biofuels, hydro, and wind. At the same time, the Western Hemisphere, while also being a major producer of coal and oil, is rapidly developing its proven natural gas reserves which, together, are the largest in the world. Natural gas is cleaner burning than oil or coal, and it is relatively inexpensive compared to renewables. It represents a major opportunity to support global economic growth while doing so in a manner that contributes directly to climate change mitigation.
Trade between Latin America and Asia grew 355 per cent between 2000 and 2010 , reaching US$442 billion in 2011 much of which driven by natural resources and energy. According to the Asian Development Bank, Asia is now Latin America’s second largest trading partner at 21 per cent, second only to the US and surging ahead of EU.
With this in mind, Singapore is positioning itself strategically not only to capitalise on growth of the Latin America-Asia trade and investment flows but also on the opportunities Latin America has to offer itself. In energy, Singapore is already adding significant value to Latin American energy production. Companies such as Keppel and Sembcorp are engaged in Latin America’s energy sector, supplying oil rigs for drilling in the deep waters off Brazil. Singaporean knowhow, management expertise and capital is being strategically deployed in the region to help develop critical sectors and industries, including infrastructure, transport, logistics and Government—all of which are critical enablers of country-level competitiveness. Latin America is the most urbanised region of the world with close to 80% of its population living in cities. As a highly urbanised city state itself, Singapore has accumulated relevant experience in the effective management of cities and urban areas and is adapting some of these models in Latin America.
Latin America is a land of opportunity. It is not without risk, nor is each nation the same. But, for the committed corporation, savvy investor or the willing entrepreneur, Latin America is more than a diversity play. It is increasingly a core, valued region of any global business portfolio.
Eric Farnsworth is vice-president of AS/COA's Washington D.C. office.
G. Jayakrishnan is Group Director for Americas at IE Singapore.